Evaluation of OFTO Tender Round 2 and 3 Benefits
Reports, plans and updates
Publication date
Industry sector
- Offshore Transmission Network
- Transmission Network
About the methodology
The contestable OFTO licensing regime emerged from a set of options for the offshore transmission regulatory regime over the period 2006 – 2009. The Government and Ofgem considered a range of “merchant” and regulated price control- based approaches at the time.
Given this context, and using the same approach as for the earlier TR1 analysis, the two central alternatives to the OFTO regime remain:
- licensed merchant generation; and
- alternative licensed price-control (monopoly) based approaches.
Two counterfactual variants of the merchant generation approach are utilised, one involving the generator owning the assets, the other involving a sale and lease-back between the lessor and the generator.
Three counterfactual variants of the regulated price control-based approach are used, two of which involve a scenario of extending existing Transmission Operator (TO) licences to include offshore transmission and one involving a “zonal” offshore licensing approach to offshore transmission.
Findings
In Net Present Value (NPV) terms, for:
- TR2, which included four OFTO projects in total, the savings are estimated to be in the range of £326m-£595m (2014/15 price base).
- TR3, which included two OFTO projects in total, the savings are estimated to be in the range of £102m-£154m (2014/15 price base).
This compares to estimated savings in the range £244m - £469m (2014/15 prices) for TR1, which included nine projects in total.
Earlier analysis of TR1 concluded that the OFTO approach as applied in GB had delivered significant savings when compared to a range of merchant and regulated counterfactuals. Extending this analysis to TR2 and TR3, suggests that the OFTO programme continues to deliver savings and indeed, on a normalised basis, the savings appear to be have increased for TR2 and TR3 compared to TR1. Specific analysis demonstrating operating and financing cost savings as well as a deeper view to the methodology used, can be found in the report.